Does Audit Committee Reporting Need to Be Improved? Evidence from a Large-Scale Textual Analysis
57 Pages Posted: 16 Feb 2018
Date Written: January 28, 2018
The SEC is considering expanding audit committee reporting requirements to include greater disclosure of the audit committee’s oversight of the external auditor. To provide insight into whether additional reporting requirements are needed we (1) perform a large-scale textual examination of the characteristics and time trends of over 35,000 US firms’ audit committee report disclosures issued between 2004 and 2015 and (2) explore whether investors find such reports useful. We find that audit committee reports have become shorter over time and include fewer voluntary disclosures. While we find some audit committees voluntarily report how auditor oversight has been performed, we find that most of these disclosures are largely boilerplate. In multivariate analyses, we provide evidence that larger companies with greater global reach, greater litigation risk, and employing Big N auditors provide greater disclosure. We find little evidence to indicate that audit committee characteristics (i.e., audit committee size, expertise, etc.) are associated with the amount of audit committee report disclosure. Finally, we do not find evidence that investors’ audit committee ratification votes are affected by the amount of disclosure in the audit committee report. In sum, our findings suggest that there is a need to improve the usefulness of audit committee report disclosures.
Keywords: audit committee reports, voluntary disclosure, textual analysis, LIWC
JEL Classification: M41, M48
Suggested Citation: Suggested Citation